KRAWCHECK: Here's How The Big Banks Can Be Trusted Again

Research shows that financial services is the least trusted US industry, with less than half of the public believing that banks will do the right thing. Thus it’s worth betting that the big banks’ 2013 strategic plans all include the goal of regaining customer confidence…and perhaps significant dollars for new ad campaigns. But it’s also worth betting that greater change is needed.

Here are some thoughts on what banks should do if they are truly serious about regaining trust:

Understandably, the top of banks’ lists for regaining trust is: Quit Messing Up. While the myriad regulations and bank compliance improvements since the downturn are certainly having an effect, the rash of new scandals last year does not bode well for “hope as a strategy” in 2013. Meanwhile, bank Boards have not really used the big stick, which is fundamentally changing employee compensation. Here’s an idea: to improve customer satisfaction, pay bank employees based on customer satisfactionand trust instead of based on shareholders, shareholders, shareholders. In other words, shift AWAY from incenting risk (which is what equity does, by its nature) and TO incenting trust. And if customers regain trust in a bank, its shareholders will do very well, I am confident.

Take responsibility when you’re wrong and apologise. Really apologise. Not the “I am sorry if offence was taken.” But push the lawyers aside and be sincere.

Rethink product disclosures. Today’s bank disclosures are clearly written by lawyers for lawyers…..and for very lonely insomniacs. The typical checking account agreement is 111 pages long, and can include detail on topics such as how interest rates are calculated in a leap year (I’m not kidding)….but nothing on what the customer’s interest rate actually is. Instead use some common sense on what customers would find useful, and give it to them in plain English.

…. and really rethink cost disclosures. Unfortunately, a lesson that the industry could take from the Bank of America $5 debit card fee roll-out (and roll-back) is to keep fees hidden. Don’t. The real lesson there is that that the company mis-read the tolerance of its customers. More hidden fees may provide greater earnings in the short-term but will remain a long-term drag on customer confidence; and they give a real business opening to new competitors.

Appoint a consumer ombudsman who reports to the Board and whose sole job is to be the voice of the customer and the customer’s advocate inside the bank. The board should hear from this person at every board meeting, just as they do from a similarly positioned head of Audit. And this person should come to the bank from the outside, as a means of providing a different voice than the echo chamber that can occur from people who have worked together for many years.

Change the community volunteer days from picking up trash in parks to providing financial planning to families who need it. Helping families plan a path to financial security is one of our country’s most significant challenges, and one that bank employees can help with. While picking up trash in parks is nice, that volunteer time can be used to much, much greater effect. And banks may then be seen as part of the solution.

This list is by no means exhaustive, but would represent a real mind-set shift for the banks — and more proactivity on the part of their Boards. (And, given that one of the bank regulators recently found that 17 of the 19 large national bank boards do not exercise proper oversight of their banks, the Boards might be open to such a stance.)

If, instead, banks continue with the same approach to customer confidence, they likely won’t see a negative earnings impact this year. They may not see it next year. But a number of innovative start-ups are recognising this trust (and customer service) gap and are moving in, and gaining some real early-stage customer receptivity. It’s time for the banks to do something meaningfully different, while they can.